Securities and Exchange Commission Accused of Shredding Investigation Documents for Nearly Twenty Years

Submitted by Elaine Magliaro, Guest Blogger

Senator Charles Grassley (R-Iowa) has asked the Securities and Exchange Commission to respond to allegations made by a whistleblower that the agency had destroyed files from preliminary investigations of financial firms—including Goldman Sachs, SAC Capital Advisors, Deutsche Bank, AIG, and Bernie Madoff Investment Securities.

A Bloomberg article reported that Grassley’s request was prompted by a letter that he received from SEC attorney Darcy Flynn claiming that the SEC had “destroyed documents including materials related to Goldman Sachs’ trades of American International Group Inc. (AIG) credit- default swaps in 2009, insider-trading probes of Deutsche Bank AG (DBK), Lehman Brothers Holdings Inc. (LEHMQ) and SAC Capital Advisors LP, and investigations of possible financial fraud at Wells Fargo & Co. (WFC) and Bank of America Corp. (BAC) in 2007 and 2008.”

Flynn, who has worked for the SEC for thirteen years, has had responsibility for helping to manage the commission’s records. He told Congress in July that since 1993 the agency has been systematically destroying files of preliminary investigations known as “Matters Under Inquiry” (MUIs). According to journalist Matt Taibbi, after Flynn alerted the National Archives and Records Administration about the document destruction, he reported that “senior staff at the SEC scrambled to hide the commission’s improprieties.”

Matt Taibbi reported the following in a recent Rolling Stone article Shredded Justice:
Many of the destroyed files involved companies and individuals who would later play prominent roles in the economic meltdown of 2008. Two MUIs involving con artist Bernie Madoff vanished. So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital.

Also from the Taibbi article:
Much has been made in recent months of the government’s glaring failure to police Wall Street; to date, federal and state prosecutors have yet to put a single senior Wall Street executive behind bars for any of the many well-documented crimes related to the financial crisis. Indeed, Flynn’s accusations dovetail with a recent series of damaging critiques of the SEC made by reporters, watchdog groups and members of Congress, all of which seem to indicate that top federal regulators spend more time lunching, schmoozing and job-interviewing with Wall Street crooks than they do catching them. As one former SEC staffer describes it, the agency is now filled with so many Wall Street hotshots from oft-investigated banks that it has been “infected with the Goldman mindset from within.”

The destruction of records by the SEC, as outlined by Flynn, is something far more than an administrative accident or bureaucratic fuck-up. It’s a symptom of the agency’s terminal brain damage. Somewhere along the line, those at the SEC responsible for policing America’s banks fell and hit their head on a big pile of Wall Street’s money – a blow from which the agency has never recovered. “From what I’ve seen, it looks as if the SEC might have sanctioned some level of case-related document destruction,” says Sen. Chuck Grassley, the ranking Republican on the Senate Judiciary Committee, whose staff has interviewed Flynn. “It doesn’t make sense that an agency responsible for investigations would want to get rid of potential evidence. If these charges are true, the agency needs to explain why it destroyed documents, how many documents it destroyed over what time frame and to what extent its actions were consistent with the law.”

Matt Taibbi talking with Keith Olbermann about his SEC story on Countdown last week:

There’s a lot more to this story. I recommend reading the full text of Matt Taibbi’s Rolling Stone article:
Is the SEC Covering Up Wall Street Crimes?

Edited to Add: Thom Hartman and Matt Taibbi – Is the SEC covering up Wall Street crimes?

Document Shredding: Why SEC’s Defense Won’t Fly (Rolling Stone)

S.E.C. Files Were Illegally Destroyed, Lawyer Says (New York Times)

Senate Investigators Met With SEC Lawyer On Document Destruction (NASDAQ)

Grassley Questions SEC Over Claims That Records Were Purged (Bloomberg)

Whistleblower: SEC improperly destroyed thousands of documents (CBS News)

48 thoughts on “Securities and Exchange Commission Accused of Shredding Investigation Documents for Nearly Twenty Years”

  1. This comes to me as no surprise people in office hide documents all the time and pull off scams, I just hope that we can somehow control the situation at some point.

  2. “I should have made my previous comment clearer. I didn’t write the above. Felix Salmon did.” -Elaine M.

    Thanks for the clarification, Elaine M.

  3. anon nurse,

    “I hope this turns into a big scandal and causes significant changes at the SEC—although I’m not holding my breath. But if it does, Taibbi will deserve a huge amount of the credit. And judging by today’s coverage, he won’t get it from the mainstream financial press.”

    I should have made my previous comment clearer. I didn’t write the above. Felix Salmon did.

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